For millionaire athletes, states with highest tax rates may not make the cut

The Golden State's new 13.3 percent income tax on top earners prompted golfer Phil Mickelson to say earlier this month he was considering a move, and according to the accountants who advise millionaire athletes, he was just saying what a lot of jocks were already thinking. Federal taxes on the top income bracket just rose by roughly 5 percent, and, while there's nothing rich athletes can do about that, they are paying attention to which states dip into their game checks — and how much they take.

“They’re going to have an exodus of people,” said John Karaffa, president of ProSport CPA, a Virginia-based firm that represents nearly 300 professional athletes, primarily in basketball and football. “I think they’ll see some [leave California] for sure. They were already a very high tax state and it’s getting to a point where folks have to make a business decision as well as a lifestyle decision.”

The taxes of professional athletes became incredibly complicated in the early 1990s, when aggressive state and local tax collectors began targeting them to pay non-resident income taxes. Technically, all employees who earn money for work done outside their home states have to pay non-resident taxes, but enforcement has focused on millionaire athletes with publicized work schedules to the extent is is commonly called the "jock tax." Although ballplayers can't get out of the state and local taxes they pay while on the road, where they play their home games can make a huge difference. California takes 13.3 percent on income above $1 million, but states like Florida, Nevada and Texas are among seven that take nothing.

It adds up, says Karaffa. As tax season enters full bloom, he expects to see an uptick in the number of clients who will consider leaving California. Under a hypothetical calculation, the tax difference for a single professional athlete making roughly $10 million a year between being a resident of California versus Florida is around $800,000 annually.

“They’ll start to see it more from paycheck to paycheck,” Karaffa said of the state’s tax bite. “And it’ll actually help my practice because guys will ask more questions and be more attuned to this. You’ll see more attention paid from professional athletes to their taxes this year because this is their largest expense.”

Karaffa, like other accountants interviewed for this article, declined to identify his clients, but relocation for tax relief by men and women who play games for a living isn’t new. Former Los Angeles Angels outfielder Torii Hunter, who recently signed with the Detroit Tigers, made headlines last year when he announced a move to Texas because of the state’s lack of income tax. The move didn't shelter his game checks from income taxes, but it did allow him to save taxes on other income, including for endorsements and autograph signings.

Hunter did save taxes on his $12 million salary by leaving California to sign with Detroit, where the Michigan state income tax is a flat 4.35 percent. And more and more ballplayers are taking taxes into account when signing with new teams or giving their teams permission to trade them.

“They’re thinking about it more often, absolutely,” said Art Hurley, partner with Daszkal Bolton and founder of its professional athlete and celebrity niche practice, Game Plan. “It’s something the professional and their advisers have been thinking about for a long time.”

For top golfers and tennis players, who make most of their money through endorsements not subject to the "jock tax," the choice of where to live has a huge impact. Mickelson, of Rancho Santa Fe, Calif., quickly apologized for riling critics on Jan. 20 when he said an effective federal and state tax rate of 60-plus percent seemed excessive. But he was likely only saying what others were already thinking, especially after California voters approved Proposition 30 last November. In addition to raising the state sales tax, it imposed a menu of new tax brackets. Just the increase of the top bracket to 13.3 percent from 10.3 percent cost Mickelson roughly $1.8 million of his $60 million income for 2012.

Mickelson’s longtime rival, Tiger Woods, acknowledged last week that he left California for Florida in 1996 upon turning pro because of the difference in state tax. At the time, California’s top rate was 9.3 percent for individuals earning more than $32,000. Woods, who earned $56.4 million in 2012, kept roughly $7.5 million this year in funds he otherwise would have owed to the state of California. Mickelson, who will now pay the 13.3 percent rate, will owe the state about $8 million.

“The more expensive it gets, the more you’re going to look elsewhere,” Hurley said. “'How much extra am I willing to pay to live in California?' And when you have a guy like Mickelson who makes so much money … just think about if he was living in Florida.”

The taxpayers left behind in CA are the ones who should care, since they will get their taxes jacked to make up the difference.

I guess my question is what is the point of posting this? Is it supposed to make others think Cali is this hell-hole of a state or something? Like I said- I don't really care what athletes do. Yesterday was 66 degrees where I live and its supposed to be in the 70's this weekend. How's the weather in good ole' Baltimore? Yeah.... thought so...

Making millions for playing a game. Sorry, no sympathy. Sadly, it's a poor reflection of our society's priorities and not necessarily the players themselves. Except basketball players. Feel free to put them all in jail :)

Tax the top 4 sport's athletes @ 80% and I still wouldn't feel bad. I'd happily play baseball or hockey for 500K a year. Where do I sign?

It should be obvious. Liberals rarely figure in the consequences to their tax increases. They already spend the money from this tax increase, without figuring in that a significant % of the people whose taxes that they just jacked are going to leave and therefore their revenue projection will be much higher than their actual. When that happens they will raise taxes elsewhere, most likely on middle class people.

It should be obvious. Liberals rarely figure in the consequences to their tax increases. They already spend the money from this tax increase, without figuring in that a significant % of the people whose taxes that they just jacked are going to leave and therefore their revenue projection will be much higher than their actual

Except that its a blunt mistake to attach the basic equation that "Taxes=Liberals". Some of your most beloved GOP politicians, such as the highly revered Ronald Reagan also raised taxes and did so some 11 times. The word "Taxes" has become politically poisonous, and this has had an adverse effect nationally: At this point taxes are lower than they have been in well over 60 years. Take a drive through most any major American city. There's a good chance that the streets are full of pot holes. The sidewalks are getting cracked and heaved up by tree roots. The Police departments, schools, and parks and recreation departments are starved of money and their facilities are out of date and crumbling. These are some of the result that you get when there isn't enough tax revenue coming in. Sure- some of this also has to do with tax misappropriation.

I am by no means saying the answer is to just tax tax and tax some more. But the supposed utopia that the right seems to allude to with the notion of zero taxes could not possibly ever exist because without taxes the US would basically be a mass of crumbling infrastructure with no military defense systems, no freeways, and no education facilities.

This is part of a bigger conversation and using ancedotal stories of a few athletes moving away from Cali supposedly over taxes isn't really making a point.

I have never complained about the weather here. If I didn't like it, I would move to FL.

Not sure that would help. You'd basically be moving from a place with miserably cold weather to a place that has miserably hot and humid weather. We went to FL a lot when I was a kid and I'm not sure what's worse.

If only that were the case, but given the high tax rates high income people pay, it really doesn't take that many to leave before it causes a budget problem for CA.

People have been leaving California for decades, usually over the high cost of housing. So far so good. California has an economy that is roughly the same size as the other 49 states combined. As far as budget problems, what else is new? Cali has had budget problems for around 40 years. Again- we're still here.

If an athlete were to have a taxable income of $1.5 million their tax liability would be $158,706 in california. I believe there is some additional tax of 1% for mental health as well which adds another $15,000. So if an athlete can get same money elsewhere I can see why they would be motivated to bolt especially if that state had no income tax at all.

Even small percentages make a big difference over time. Don't have to be an athlete. Do the compound interest math over ten years for just 5 percent.

When I see my wife's relatives in Louisiana, they are happy as clams, would never live anywhere else, visit Ca, Las Vegas, San Francisco and Tahoe regularly as well as other destinations, and live like kings compared to the typical CA upper middle class, on much lower incomes. When I showed them a picture of the house of my former boss in Palo Alto, with his twenty year old used Toyota in the driveway, they thought he must have been hit with hard times and was living like a sharecropper. He was in fact doing quite well financially.

There is a lot of denial in CA for those who want to believe it is the only place to live. Nobody contests the weather or the natural beauty, but those aren't things that you are going to notice if you are working relentlessly just to make ends meet.

If you are a trust fund kid and can go outdoors a lot and can live the soap opera life without struggling, maybe it is different. For most working stiffs, they will only notice the advantages of weather and environment on the brief occasions when they are not resting from labor and have some time to spread their wings. In the meantime, their assets are drained more or less as quickly as they can make them, and in other facets of their lives, they are living at a much lower general standard.

There is a lot of denial in CA for those who want to believe it is the only place to live.

Yes, a gentleman that knows naught but SF area living can be happy as a clam living in what most of the country would consider drop-out housing (small 1950’s built house with a tiny yard in a neighborhood with overhead power and worn old warped sidewalks). Happy because he lives near a BART station, enjoys “ Mediterranean weather” , and when he and his wife have free time from their long work hours and commute, can go out for the “to die for” garlic grape leaf salad at the tony Giglio’s ethnic restaurant.
In another part of the USA, another gentleman can be just as happy with his lot. That is, he can afford a roomy house with land for the kids to play ball, can afford a boat and trailer to go to his favorite fishing lake, has enough time to actually go fishing and water skiing, and has a great time with several pals playing all night poker on a picnic table by the river under the light of a Coleman lantern, all while joking and drinking beer from a cooler.
It is great to live in what is the best place for you. But do not think for a minute that the rest of the country envies your locale and lifestyle. I sure you give little regard to how many people in Manhattan see their turf as the “place to be,” and consider even places like SF and LA to be quaint backwaters.

Yes, a gentleman that knows naught but SF area living can be happy as a clam living in what most of the country would consider drop-out housing (small 1950’s built house with a tiny yard in a neighborhood with overhead power and worn old warped sidewalks). Happy because he lives near a BART station, enjoys “ Mediterranean weather” ,

LOL! funny thing is many in SF Prime get Foggy London weather much much more than Mediterranean weather as in the south bay or even the north bay. And certainly more blue skies in Virgina than SF. And many like that
actually have Govt jobs which trap them living in the city.. there just isnt much in terms
of private jobs in SF prime... so they live in a fantasy land.. east bay isnt far from that either.

SouthBay... yes.. many many have left! as BOCUS has said.. they had a exit plan...

California sux, please do not move here. I had to play ultimate frisbee in 70 degree weather with my daughter today while my lucky relatives in MN get to enjoy -40 degree weather. Don't get me started on all the hot liberal horny milfs with awesome weed.

For most working stiffs, they will only notice the advantages of weather and environment on the brief occasions when they are not resting from labor and have some time to spread their wings.

The flip side of this is, when I have free time on the weekend, I can almost certainly go outside and do something. Whereas living in the midwest or whatever, the weekend might be good, might not be. And no matter where I'm living, I will work m-f. So I would rather have good weekends!

It is probably true that the CA gov ends up somewhat less efficient than other places, because there's a weather advantage. Whereas some other places would have to work much harder to attract residents, so the gov would perform better services for lower price.

Not not really for every athlete that bolts, 1,000 techies will move in.

I'm thinking that a lot of them are leaving too.

Not in SFBA. The "googlers" live quite well here. Not only are they being recruited, but they have the following perks - luxury shuttle buses that transport them to "campus", provided meals at cafeteria, dry cleaning on site, etc. There are many errands and time consuming activities that others have to do that they don't. They are the true perks gliterrati!

I am ok with tax increases as a last, last resort-as long as we have spending cuts. I think the fiscal cliff should have happened. It is very easy for a bunch of us to penalize the rich and vote to take away their money and fund ourselves. But once that mentality sets in, it will be the next rung and the rung below. If all of our tax rates had gone up-then all of us would be screaming bloody murder and asking how that money is spent.

Not in SFBA. The "googlers" live quite well here. Not only are they being recruited, but they have the following perks - luxury shuttle buses that transport them to "campus", provided meals at cafeteria, dry cleaning on site, etc. There are many errands and time consuming activities that others have to do that they don't. They are the true perks gliterrati!

all those perks come at a price...reason they were given lower salary than their peers..
it changed about 2 years ago or so.. many began to leave... not the utopia many wanted.

But the supposed utopia that the right seems to allude to with the notion of zero taxes could not possibly ever exist because without taxes the US would basically be a mass of crumbling infrastructure with no military defense systems, no freeways, and no education facilities.

Infrastructure existed long before the Romans built the first publicly funded road, which was built on top of existing road, and of course all official apologists always wrote the road network was what the Roman Empire brought to the people . . . until recent archeological dig found a much more ancient road buried 10+ft under the Roman Road.

Education existed long before the Germans invented public education (in order to produce soldiers for the state).

Defense would still exist, unless each of decide to surrender to invaders. A Standing Military is explicitly prohibited by the Constitution, therefore has to be authorized by Congress every year.

The flip side of this is, when I have free time on the weekend, I can almost certainly go outside and do something. Whereas living in the midwest or whatever, the weekend might be good, might not be

I do stuff on the weekends outside all the time here, even in the middle of the winter. And not just shoveling snow (although that is good exercise)

Even I think these people might be pretty hardcore, but to each, their own:

Personally, if my water bottle is going to freeze on me, I usually won't go out cycling. But that's just me. Fortunately that does not happen often here. People in other parts of the country seem to think the entire Northeast has terrible winter weather, but that's not true (or not true anymore, according to old people here). The areas near the coast all the way up to and including NYC and Long Island are actually pretty mild, they just don't have the reputation for it.

Not not really for every athlete that bolts, 1,000 techies will move in.

I'm thinking that a lot of them are leaving too.

Not in SFBA. The "googlers" live quite well here. Not only are they being recruited, but they have the following perks - luxury shuttle buses that transport them to "campus", provided meals at cafeteria, dry cleaning on site, etc. There are many errands and time consuming activities that others have to do that they don't. They are the true perks gliterrati!

Such perks are simply a companies way of encouraging longer work hours without raising compensation.

if my water bottle is going to freeze on me, I usually won't go out cycling

I am a avid cycler myself, and I ride year round. I do not mind riding on snow (rarely snows in coastal VA), but not on ice. I am not as young as I used to be, so I will take my hat off to anyone who can ride distance on those SF steep hills.

Maybe Vincete would consider a bike run from Union Sq to Russian Hill a "light workout."

I am a avid cycler myself, and I ride year round. I do not mind riding on snow

Ever ride while it is snowing? I don't recommend it, but I've done it a couple of times when I was running errands on the bike and had to get home. It beats riding in the rain, but still it's an interesting experience.